Posted by Jeffrey Feingold on 09.20.23
In a surprising move, the Internal Revenue Service (IRS) recently announced an immediate halt to the processing of new Employee Retention Credit (ERC) claims, citing suspicions of fraudulent activity and the sear volume of claims submitted.
Background to the ERC
In the wake of the COVID-19 pandemic, the U.S. government introduced several economic relief measures to help struggling businesses. One such initiative was the Employee Retention Credit (ERC), aimed at encouraging employers to retain their employees during these challenging times. However, recent developments have raised concerns about the misuse of this credit, leading the IRS to temporarily halt its processing for new claims.
Understanding the ERC
The Employee Retention Credit was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. It was designed to provide financial relief to eligible employers affected by the pandemic, encouraging them to keep employees on their payroll. Initially, the ERC was set to expire at the end of 2020, but subsequent legislation extended its availability through 2021.
The ERC offered a tax credit of up to 50% of qualified wages paid to employees, with a maximum credit of $5,000 per employee. To be eligible, businesses needed to meet specific, strict criteria, including experiencing a significant decline in gross receipts or being subject to government-ordered closures due to COVID-19.
The Surge of Questionable Claims
However, while the ERC was undoubtedly a lifeline for many businesses, its implementation also brought about some unintended consequences. The surge of questionable claims has raised concerns about potential fraud and misuse of this relief program. Indeed, newly appointed IRS commissioner Danny Werfel recently noted that as many as 600,000 new claims were filed in the past three months, mostly due to aggressive marketing and outright scam artists preying on unsuspecting taxpayers.
Some common issues that have come to light include:
The IRS's Response
To address these concerns and safeguard the integrity of the ERC program, the IRS announced a temporary pause on processing new claims. This halt in processing as effective September 14, and is expected to last until the end of the year. During this period, the IRS aims to review and improve its systems to prevent fraudulent claims and ensure that the credits are distributed to those who genuinely need them.
The IRS also indicated that during this moratorium that it will increase its scrutiny of claims, implementing stricter verification processes and conducting audits on businesses that received the ERC. This move is intended to identify and rectify any fraudulent or inaccurate claims while allowing legitimate applicants to receive the relief they are entitled to. This pause is clearly a necessary measure to ensure that the ERC benefits those businesses that genuinely need it while preventing misuse.
As the IRS works to address these issues, it is crucial for businesses to understand the program's requirements and adhere to the rules to avoid compliance issues and audits in the future. Coordinating with a taxpayer’s payroll processing company like Tax Point Advisors can help you determine whether your business’ activities meet the qualifications to avoid an audit.
Tax Point Advisors works with taxpayers across the U.S. to determine credit eligibility and can take care of all aspects of the documentation and application process.
Tax Point Advisors can help with;
Tax Point Advisors can help you determine whether your business’ activities meet the qualifications by conducting a free assessment. To learn more about tax benefits from the Employee Retention Tax Credit you may call us at (800) 260-4138 nationwide.
